UK expats face ruin in Spain and France after being duped by bogus financial advisers

A Money Mail probe has uncovered how thousands of expats have lost their homes and life savings at the hands of rogue financial advisers.

Most victims are pensioners who were conned into gambling on high-risk investments.

Ruth Lythe reports on how those hoping to find a life in the sun had their world torn apart.

Threat: Former actress Julia Hilling fears losing her home in the Spanish sun

Thousands of British expats are on the brink of losing everything after being duped by unscrupulous financial advisers.

The
cowboys have persuaded thousands of our vulnerable pensioners — many
in their 80s and 90s — to give up huge stakes of their property in
exchange for investments that will never make a penny.

The
schemes are often sold by rogue financial advisers who exploit weak
consumer laws on the Continent by falsely claiming to be bona fide
accountants.

Most of the victims are Britons who
retired to Spain or France and wanted to use the cash in their homes to
help with soaring living costs.

John Parsons, founder of the Costa del
Sol Action Group that is helping some of the victims in Spain, says:
‘The effect of all this worry is enormous. The stress has brought on a
lot of serious health issues and they are extremely worried about their
futures.

‘These people were not greedy or
stupid. They were on fixed pensions and being financially squeezed, so
jumped at the possibility of solving that situation.’

The latest crisis follows a Money
Mail investigation in 2008, which exposed how hundreds of British
pensioners living on the Costa del Sol had gambled their homes in a
risky equity-release scheme run by failed Icelandic bank Landsbanki.

Now we can reveal how thousands more
pensioners have fallen for other risky equity-release schemes on the
Continent and are being hounded by banks demanding hundreds of thousands
of pounds.

More...

During the property boom at the start
of this century, around 100,000 pensioners left Britain to live out
their days in southern France and Spain — attracted by a warmer climate
and cheaper way of life.

Many had a small pension, but hundreds
of thousands of pounds from the sale of their UK home, which had soared
in value over their lifetime.

This money was used to supplement
their incomes and buy a new home abroad. But soon after they moved, the
cost of living in some areas soared as hundreds of thousands of Britons
and Germans bought second homes.

Many pensioners found they needed
extra cash, and became easy prey for unregulated financial advisers who
had left Britain to tap into the new wealth in these regions.

Local rules meant they were able to act unchecked, selling investments from banks based anywhere in the world.

Sometimes they claimed to be chartered accountants, but were not — many had never even registered with local authorities.

In Spain in particular, these advisers
could largely sell whatever they wanted — including types of
investments and equity-release schemes outlawed in the UK. These paid
handsome commissions that could net advisers a £50,000 payday.

Banks offering equity-release loans
included Icelandic bank Landsbanki, Scandinavian banks Nordea and
Sydbank, and UK private bank Rothschild. However, Money Mail understands
they are not the only banks involved.

The majority of victims were told they
could borrow the entire value of their property. The loan would incur
interest, typically of up to 6.5 per cent. It meant that after ten
years, a €500,000 (£412,667) loan would balloon to €681,240 (£562,251).
To offset this, a large chunk — usually around 75 per cent of the loan —
would be invested in a fund sold by the adviser.

Pensioners were told returns would be
so good that not only would they cover the interest on the equity
release, but give the borrowers a little extra to spend.

INVESTMENTS THAT TURNED TOXIC

But the promises made turned out to be
very different to the theory. This meant returns did not cover the cost
of the interest repayments on the equity release.

As the fund fell in
value, it ate into the capital that borrowers needed to repay the debt.
Charges for fund managers and commission also reduced the returns
further.

Worse was to follow when house prices
in Spain fell. They had risen by 44 per cent between 2004 and 2008, when
many of the victims had bought their homes. They have since plummeted
by around 20 per cent.

Those who had borrowed almost all of
their property value were soon in negative equity — where the value of
the property value was less than the money owed on it — leaving them
unable to sell to clear their debt.

In theory the borrowers were
expected to pay off their loan at the end of four years. But because the
value of the investments plunged so low, it triggered small print in
the equity-release contract that allowed banks to demand repayment
early.

In the case of those expats with
Landsbanki, the bank collapsed and the investment fund was snatched by
company liquidators. Then a further problem struck — the value of the
pound plunged against the euro.

Many of the victims were paid pensions
in pounds and relied on converting the money into euros every month.
The drop meant the value of their pensions fell by a third.

RETIREMENT DREAMS LEFT SHATTERED

Campaigners estimate thousands of
British pensioners have lost money through these schemes. Former actress
Julia Hilling, 88, fears her home will be swallowed up in repayments to
her mortgage from Rothschild Bank.

She was sold the mortgage in 2005 by a
Malaga-based British financial adviser. Today, this company is classed
as unauthorised by the Spanish authorities. Her property was valued at
€300,000 (£249,966) and she took out a loan for €262,000 (£217,827).
Around €17,000 (£14,138) was used for living expenses and she put
€245,000 (£203,693) in an investment fund.

Tempted: Julia Hilling, pictured was an actress in the 1940s, says she went for a scheme because she needed to pay bills

Mrs Hilling, who starred in musicals
in the Forties and in revues with Sir Bruce Forsyth at the Windmill
Theatre, London, had never invested or even had a mortgage before.

Since 2005, the fund has plunged by
around a third and will no longer cover her mortgage. She owes €330,000
(£274,362) and the debt continues to grow. Mrs Hilling says she is
unable to cover these costs and fears the bank will take her property
when she dies.

‘I needed the money desperately to pay everyday bills while I was out here, as I didn’t want to rely on my family,’ she says.

Rothschild told Money Mail it would
not repossess Mrs Hilling’s home. It stressed it had not sold the
investment to her and was not demanding repayment nor had it paid
commission. It urged her to contact the bank.

Another victim is Eric Mould, 64, who
after a career in sales moved to a seaside villa in Puerto Banus, near
Malaga, in 2007. He and his wife Mary, 60, sold their four-bedroom
detached house in the UK to buy a three-bedroom villa with a swimming
pool for €1,188,000 (£990,000).

But five years later they are living
in a friend’s flat in the town and battling to pay €2,100 (£1,745) a
month in mortgage repayments to Danish bank Nykredit.

Shortly after arriving in Spain, the
couple borrowed €1 million against their villa with the bank. They say
the British financial adviser who sold them the equity-release mortgage
told them it would be a ‘win-win’ situation.

They were told they could free up
hundreds of thousands of pounds from the mortgage, and the fund would
pay off the loan. They believed the investment they were sold separately
through Danish bank Sydbank would leave a little extra to boost their
pensions.

To cover the mortgage, the Moulds have
rented out their dream home. Their friend is letting them live
rent-free in the apartment. The couple fear it is only a matter of time
before their home is repossessed. And because property values have
dropped, they could lose up to €300,000 (£249,966)

‘This has totally devastated us. It is
heart-breaking — we face losing the home we worked for a lifetime to
buy,’ says Mr Mould.

Sydbank would not comment on the case.

Others who took out equity-release
schemes with collapsed Icelandic bank Landsbanki have been told it will
settle — as long as they pay part of the money owed, in some cases
hundreds of thousands of pounds.

One couple, Linda and Frances Barlow,
aged 63 and 75, who live in Nice in the south of France, believe the
bank’s liquidators will repossess their home by May unless they stump up
€1.3 million (£1.08 million).

The liquidators proposed a compromise deal, but it would have required the couple to find €500,000, which they do not have.

The Barlows took only a small
proportion of the loan as cash. The rest was invested by the bank, and
lost when it collapsed in 2008.

‘We wanted some cash to renovate,’
says Mrs Barlow, a musician from London. ‘We didn’t want to take out a
big loan, but the financial adviser told us we were foolish to be
sitting on an asset and that we should get an equity release to have an
income. Now we are going to lose everything.’

Pensioners fight to keep their homes

Scores of pensioners have launched
legal action against the banks and financial advisers who sold them the
loans. Solicitor Antonio Flores, of Spanish law firm Law Bird, who is
representing some of them, says: ‘Many people are left with huge bills
and in fear of losing their homes.’

In February, the European Commission
announced plans for an independent ombudsman to deal with mis-selling
cases against financial advisers working in the Costa del Sol.

Meanwhile, the Foreign and
Commonwealth Office has issued official warnings about mortgage schemes
advertised as a way of cutting tax bills.

Any expats thinking of signing up to
an equity-release scheme in Spain should check the company is registered
with the agency in charge of the Spanish stock market, the Comision
Nacional del Mercado de Valores (CNMV).

It will also provide a list of
companies that are not authorised to operate in Spain and those that
have warnings issued against them.

Remember to seek independent legal advice before signing a contract.

If you believe you have been a victim of a fraud involving an equity-release scheme, then register a statement with the police.

Seek independent legal advice about taking action through the courts.

If you wish to complain about the performance of your investments, you should first complain to the equity-release company.

After two months, if you are not happy
with the response, take your complaint to the Spanish Investors’
Complaints Office: Oficina de Atención al Inversor, Miguel Ángel 11,
28010 Madrid.

There is also an office at Paseo de Gràcia, 19, 4ª Planta, 08007 Barcelona.